There is no doubt that we are in an Artificial Intelligence (AI) Revolution. AI is no longer a futuristic concept but a critical tool for modern businesses. Olmstead created an AI Use Case Map that identifies over 100 AI use cases across an investment manager. It has the potential to impact every department, and to radically transform organizations.
AI Evolution Model
Using the classic Crawl, Walk, Run model, we can describe the typical evolution for AI adoption:
- Crawl: AI Experimentation – This initial phase is where people are learning new skills, concepts, and tools. Projects are often stuck in development or only used by a limited audience like data scientists. This phase is important for gaining comfort and confidence with AI.
- Walk: Limited AI Use – This phase introduces AI solutions to production, but narrowly. It helps raise AI Literacy in the organization. This includes rolling out AI capabilities from vendor solutions. Another common use case is to deliver a private ChatGPT so that people can safely use and experiment with AI Assistants without the risk of leaking sensitive information.
- Run: AI Enabled Enterprise – This phase enables wide AI adoption across the organization. This phase requires executive leadership to establish Guardrails and Oversight so that staff can use AI safely, with minimal bureaucracy, and avoid veering off into dangerous territory. AI adoption is being championed, managed, and measured.
It can take a marginal amount of effort to progress between Crawl and Walk phases, but most firms get stuck at the Walk phase. Maturing between Walk and Run requires an AI Strategy. Leading firms are running because they know AI is the key to staying competitive, and the race is on.
Tinkering time is over; it’s time to be strategic!
Benefits of AI
Firms primarily benefit from AI in 3 ways:
- Productivity
- Enhanced Decision Making
- Innovation
Note that these benefits are not mutually exclusive since most use cases provide multiple benefits – sometimes all three.
Productivity
Firms are always challenged to do more with less. Routine tasks should be automated to create capacity for people to focus on value-added work. Effectively leveraging AI for productivity creates a competitive edge by streamlining operations, reducing costs, and improving responsiveness. Hours of human labor can be reduced into minutes. Other side effects include reliably meeting deadlines, increased service levels, and improved job satisfaction.
AI can now do things easily and inexpensively that were previously expensive and complex to automate. For example, Intelligent Document Processing (IDP) can understand the content of documents, extract relevant information, and organize it for easy access and integration into other systems. Every alternative asset manager uses IDP to deal with the mountain of unstructured documents.
Leveraging AI for productivity is a smart way to start AI adoption because it offers practical learning experiences, tangible benefits with relatively low risk, and demonstrates the value of AI to the entire organization.
Enhanced Decision Making
Investment Management is a data-driven business, and companies are awash with data. The top challenge is making sense of it. AI offers some cost-effective capabilities such as summarization, sentiment analysis, anomaly detection, and predictions.
A popular use case is AI-assisted investment research. It can efficiently review earnings transcripts, expert calls, sell-side research, news, and financial filings, then extract key data points, summarize views, and make predictions. Report preparation time can be reduced by 60-85%. Streamlining the investment research process allows it to innovate in both breadth and depth.
In another example, AI-augmented financial analysis detected market anomalies 43% more accurately by analyzing interconnected patterns across thousands of securities simultaneously. Analysis improvements unlock profitability.
Innovation
Seeing the positive impact of AI on productivity can help employees become more comfortable with and accepting of AI technologies, fostering a culture of innovation and continuous improvement. By automating routine tasks and providing insights from data analysis, AI can free up people and cognitive capacity for innovation and new business opportunities. Innovation opportunities include reimagining and reinventing processes, responding to new opportunities, and creating new products.
Hyper-Personalization at scale is a popular innovation. AI enables firms to deliver a level of personalized service that was previously impossible without proportional resource increases. The client service role shifts from reacting to client needs to proactively anticipating and addressing them, leading to higher client satisfaction, more wallet share, and retention. Superior client experience builds deeper trust and loyalty in a competitive market.
Lead Generation and cross-selling are other examples of AI enabled personalization. By analyzing marketing activity, customer information, and external data, AI can craft a timely tailored message for the customer. Connect the right person with the right message at the right time.
Risks of AI
While the benefits of AI are attractive, firms need to ensure that AI adoption is done safely. The firm must be protected, be compliant with industry regulations, and avoid becoming overly bureaucratic. Ultimately, firms need to cultivate an AI Culture where AI adoption is encouraged and enabled, but in a risk-controlled way.
For example, firms need to understand how AI is being used throughout their organization because they will need to disclose its use to regulators, customers, and prospects. They will also need to explain what controls are in place and how risks like data privacy and hallucinations are being mitigated.
AI use without any guardrails and oversight will expose firms to regulatory risks, operational risks, and reputational risks.
Risks of Inaction
Don’t let the fear of AI risks stop you from advancing your AI strategy because the benefits outweigh the risks:
- Falling Behind the Competition: Leading firms have made AI a top priority and are investing. Things are rapidly changing, and proactive firms are going to be well positioned to take advantage of new advancements.
- Missed Opportunities: When you are not leveraging AI to boost productivity, you are wasting resources. Streamlining and scaling processes can lead to improved decision making and better investment decisions.
- Inability to Attract and Retain Top Talent: Top talent does not want to do mundane, routine work. AI allows them to automate that mundane work so that they can focus on high-value analysis.
Using AI is table stakes, not optional. This is a race, and your competitors have a head start.
The AI Enabled Enterprise
In summary, AI is a critical ingredient for firms to stay competitive. Firms need to cultivate an AI Culture where AI adoption is encouraged and enabled, but in a risk-controlled way.
Firms have an immense opportunity to transform their organization with AI. Olmstead’s AI Use Case Map has identified over 100 use cases across an investment manager. Every department can benefit, but only if you are prepared. Olmstead advocates that firms initiate an Enterprise AI Strategy, like how firms instituted an Enterprise Data Strategy.
Read our next blog article to learn more about an Enterprise AI Strategy.